Tuesday, August 04, 2009

Cash for Contributors' Clunkers

August 4, 2009, 1:00 p.m.

"You're the reason I'm ridin' 'round on recapped tires"
(brought to you by FromDC2Iowa.blogspot.com*)

You're the reason I'm ridin' 'round on recapped tires
An' you're the reason I'm hangin' our clothes outside on wires
. . .
Ah, but money ain't everything
I love you just the same

-- You're the Reason Our Kids Are Ugly
I'm no fan of Senator Jim DeMint (R-SC), but I have to admit we're at least in partial agreement about the "cash for clunkers" program.

On July 23 I added an "Update" to my blog entry, "Why GOP Fears Meaningful Health Care; GOP Sees Democrats Taking Credit for Meaningful Health Care Legislation
as Partisan Blow to Republican Party,"
July 8, 2009.

It was prompted by DeMint's comment that he wanted to "break" President Obama: "As further evidence that the GOP continues, up to this day, to view its opposition to health care as a way to strengthen the Republican Party -- at the expense of the health of the American people, as well as the Democrats and President Obama -- Senator Jim DeMint is urging on his Republican colleagues with the hopeful assessment, 'If we’re able to stop Obama on this, it will be his Waterloo. It will break him.' Linda Feldmann, "How Jim DeMint did Obama a favor; The senator said healthcare would be Obama's 'Waterloo' – if Obama lost, it would break him. Now, Obama is using the comment as an example of crass Beltway obstructionism," Christian Science Monitor, January 21, 2009."

More recently, he had this to say about the "cash for clunkers" program:

"If we give away free money, people will buy cars," said DeMint. "But what about appliances, and heat pumps, and TVs? The problem here is instead of across-the-board . . . effect on our whole economy, the federal government is trying to run a particular business by targeting just the auto industry . . ..

"It just doesn't make any sense to keep . . . borrowing money from our children, and then saying, 'Shazam, we've sold some cars!'"
David S. Morgan, "DeMint: Gov't 'Out of Control' on Clunkers," CBS News Blogs, August 4, 2009.

In politics you never want to permanently alienate anybody. Today's most forceful (and effective) opponent may become tomorrow's ally. I'm not "in politics" in that sense, and DeMint is neither my enemy nor my friend. But the juxtaposition of his two quotes does illustrate the proposition.

My position for the past year of our economic downturn has included:

- If you're "too big to fail" you're too big, and ought to be broken up

- I can handle either marketplace capitalism or socialism; what I object to is the privatization of profits on the way up and the socialization of losses passed on to the taxpayer on the way down

- Bankruptcy (followed by reorganization) is preferable to bailouts; assets may be "toxic" but they're still worth something in a free marketplace, and their low value is the consequence of management error that ought to fall on executives and investors; whatever's left can continue to be operated by somebody

- If you do want to involve taxpayers' money in recovery efforts, in an economy that is driven 60-70% by consumer spending the money needs to go to consumers, not corporate CEOs and bankers: federal jobs programs (e.g., WPA, CCC), increased and extended food stamps and unemployment compensation, universal single-payer health care for all (at least until the economy is back on track), job training programs, and prevention of mortgage foreclosures

- Even if you do want to contribute taxpayers' money to the bottom line of for profit corporations (and their executives' bonus payments), at a time when the entire economy is taking a hit it's hard to justify singling out any one favored sector (e.g., automobile industry) for special taxpayer largess.
It's against those principles that I evaluate the "cash for clunkers" program.

The up side: It is putting money in the hands of individuals, not banks and large corporations -- automobile dealers and their customers. There is some marginal environmental benefit to substituting a higher gas mileage car for a lower gas mileage car.

The down side:

- Senator DeMint and I agree that it's a little difficult to either rationalize or justify the limitation of the program to automobiles, rather than including, as he says, "appliances, and heat pumps, and TVs." The industries manufacturing those items, and the dealers selling them, are as hard hit as auto dealers. And replacing that equipment with the newer, power-saver models would also have a favorable environmental impact. As explained above, I wouldn't give taxpayers' money to any industrial sector; but if we're going to do it anyway I think it should be more equitably distributed and include, for example, the millions employed in retail establishments.

- My sense (without the data) is that if a part of the purpose of this program was to encourage automobile manufacturing I'm not sure it was well focused; my sense is that dealers are primarily simply reducing the inventory that was sitting on their lots unsold.

- To the extent a part of the purpose was to improve the average mpg of America's autos I'm not sure how impressive it's been; according to the Times the average mpg of those sold under this program have been "cars . . . 28.3 miles per gallon, for S.U.V.’s, 21.9 miles per gallon, and for trucks, 16.3 miles per gallon." Matthew L. Wald and Nick Bunkley, "Spurring Sales, Car Rebate Plan Is Left Up in Air," New York Times, August 4, 2009, p. A1. (a) I didn't realize that trucks and SUVs were included at all, and (b) I can't remember how long ago it would have been that a car we had would have done no better than 28 mpg. If we're really trying to improve cars' gas mileage with a multi-billion-dollar program, shouldn't we at least insist on the mileage equivalent of the used cars' mileage 10 and 15 years ago?

- To the extent the purpose was to help Americans suffering from the economic downturn it also failed. The people who most need help are the unemployed who need a car to look for work and can't even afford to take on the monthly payments for a five-year-old used car. If you can't pay your mortgage and credit card debt why would you ever consider buying a new car -- with or without this rebate -- and adding even more debt to your debt-burdened finances? My guess is that most of the customers taking advantage of this program are those who are doing well enough that they can afford to either pay cash, or easily take on the additional monthly payments, and are accustomed to buying new, rather than used, cars. (I don't think I've ever purchased a new car. I mostly walk and bike, and put no more than about 400 miles maximum on my vehicle, a 1978 VW van.)

- Even for those wealthy enough to buy new cars, the economic benefit of receiving cash for their "clunker" is not $3500 to $4500; it is the difference between the trade-in value the dealer would have authorized even without the program, and what was provided by the taxpayers to the dealer. (That is, if the trade-in value of the old car would have been $2500 anyway, the incremental benefit to the buyer is $1000 to $2000, not $3500 to $4500. Moreover, those wealthy enough to be buying new vehicles would probably be driving older vehicles worth at least $2500.)

- Those who can't even afford to buy the old clunkers are notoriously miserly when it comes to campaign contributions for senators and members of congress. Auto dealers are much more generous. Much as I'd like to think of "cash for clunkers" as a genuine effort to help those in need it has a slight sniff -- not a stench -- of political business as usual: pay to play.
When the Senate gets back to health care Senator DeMint and I will be back on our more comfortable opposite sides from each other. But, for today, we're in basic agreement on this one.

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson

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